More on a possible UK interest rate rise this year, following the select committee appearance of Bank of England policymakers this morning. Andrew Wilson at Goldman Sachs Asset Management, said:

Comments concerning monetary policy largely echo this month’s Monetary Policy Meeting. We still see scope for one rate hike this year, most likely in the fourth quarter and we think the pace of UK monetary tightening thereafter will be gradual given uncertainties around determinants of recent activity softness.

We also suspect policymakers will await further clarity from macro data before providing further guidance on the timing of any future rate hikes. Inconclusive Brexit negotiations, and uncertainty around when the inflation impact from referendum-related currency depreciation will fade, create additional challenges for the BoE.

If the FTSE 100 is to reach 8000 for the first time, it might need to be soon, says Fiona Cincotta, senior market analyst at City Index, before the Bank of England decides to raise interest rates:

A weaker pound, a further easing of tensions between US and China and stronger commodity prices encouraged the FTSE to continue its steady rise towards its 8000 target. Now just 100 points away, with momentum on its side and the pound looking more fragile than it has for a while, 8000 is a very reasonable target.

The inverse relationship that exists between the pound and the FTSE thanks to a large percentage of FTSE firms earning revenue outside of the UK, is expected to help the FTSE break higher into unchartered territory towards 8000, sooner rather than later. After weeks of softer than forecast UK economic data, most recently a fall in factory output to the lowest level in two years, plus Brexit uncertainties and a BoE that is happy to sit on the side-lines, key factors are aligned for a soft pound and another push higher by the FTSE.

With the harsh weather conditions well behind us, the outlook for the economy is looking up, according to the BoE, making an August rate hike once again a possibility. Should investors start to believe that the August hike is well and truly back on the table, the pound could start to pick up off year to date lows, making it harder for the FTSE to reach 8000. With this in mind, the FTSE’s final move higher to 8000 needs to be in the bag sooner rather than later to guarantee a hit, otherwise a stronger pound is likely to prevent that psychological level being struck this summer.

Chinese plans to cut import tariffs on US cars has helped support markets. Joshua Mahony, market analyst at IG, said:

European markets are pushing upwards amid improving US-Chinese trade talks, and a weakening pound. The pound has been suffering in late trade, coming off the back of a CBI report that showed UK manufacturing output to be growing at the slowest rate in two-years. With manufacturing failing to gather momentum, there is a fear that we will see the focus of UK economic weakness shift from construction in Q1 to manufacturing in Q2....

Improving US-Chinese relations continue to help improve risk sentiment as the week progresses, with news that China has pledged to reduce levies on automakers and car parts helping the likes of General Electric gain ground. While car makers welcomed news that China will cut tariffs on both imported cars (15% from 25%) and car parts (6% from average of 10%), these still remain comparatively high and are unlikely to alter the status quo of firms basing production in China to avoid such levies. China remains the largest car producing nation in the world, and this token gesture is unlikely to really make any dent in that dynamic.

While the benefits from this reduction in Chinese levies are questionable, the decision to let ZTE off the hook for brazenly defying US sanctions on Iran and North Korea is a big boost for China given they employed 80,000 workers. While on face value the Chinese seem to be getting more from this deal, todays deal at least helps reinstate demand for US listed firms Qualcomm and Dolby, from whom ZTE buy many of their processing chips.

The FTSE 100 continues to set new records, briefly breaking through the 7900 barrier for the first time as the close of the trading day approaches.

More bad news for retail workers:

Tesco is shutting its clothing and homewares website Tesco Direct in a surprise move that puts 500 jobs at risk.

Staff were briefed on Tuesday afternoon about the decision to close the loss-making website which was the supermarket giant’s attempt to take on Amazon.

Tesco said it had conducted a detailed review of the operation but could not come up with a plan that would make the business, which sells thousands of products ranging from toys, to clothing and electrical appliances, profitable. As a result the retailer said approximately 500 staff were at risk of redundancy.

“This decision has been a very difficult one to make, but it is an essential step towards establishing a more sustainable non-food offer and growing our business for the future,” said Charles Wilson who is the new boss of Tesco’s UK chain. “We want to offer our customers the ability to buy groceries and non-food products in one place and that’s why we are focusing our investment into one online platform.”

Our full report is here:

Wall Street has now slipped into negative territory but that has not stopped the FTSE 100 from hitting new heights.

The UK index is now up 0.45% at a new intra-day peak of 7896, helped by the pound losing most of its earlier gains. Against the dollar sterling is now up just 0.08% at $1.3435. Connor Campbell, financial analyst at Spreadex, said:

The fact cable’s gains more than halved as the day went on freed the UK index up to shake off its early reticence, the FTSE adding around 25 points in value. That sent it above 7890 for the first time in its history, in the process making the mythic 8000 mark closer to becoming a reality.

Whether or not the FTSE can actually reach that landmark level this week may be down to a couple of factors. One: the performance of Brent Crude. The black stuff re-crossed $80 per barrel on Tuesday as supply concerns relating to Venezuela and Iran continued to heighten. However, BP and Shell were resistant to this rise, instead falling 1.2% and 0.6% respectively. If the FTSE is to keep rising, then its oil colossi need to get on board.

Two: how sterling reacts to the week’s data. The inflation reading on Wednesday and the 2^nd estimate Q1 GDP figure on Friday are both potential lightning rods for a pound-rebound, dependant on whether or not they beat the expected stagnation. If they don’t, and cable hits a fresh 2018 low, then the FTSE may be in for a boost.

Oil is on the rise again with Brent crude back above the $80 a barrel level it breached last week.

It is currently up 1.17% at $80.15 on renewed concerns about falling supplies from struggling Venezuela, as well as Iran after Donald Trump pulled out of the nuclear agreement. Mihir Kapadia, chief executive of Sun Global Investments, said:

The prospect of further Iran sanctions coupled with the disputed election results in Venezuela have helped to firm oil prices. President Trump and the White House have made clear that any new Iran deal would require the country to stop enriching all uranium and halt support for militant groups in the region. Iran’s government has rejected these demands, increasing the chance that the US could impose severe economic sanctions on the country. Sanctions would reduce oil supply. The possibility of a drastic fall in Iran’s output has helped to support oil prices in recent months.

Oil prices were also pushed higher by the disputed election in Venezuela. The US has promptly responded with sanctions that seek to greatly restrict investment in debts issued by the Venezuelan government or Venezuelan agencies, although the US did not ban the purchase of oil itself. Analysts will be watching closely to see how the situation develops.

Here’s our story on the Bank of England committee hearing:

British households are more than £900 worse off following the vote to leave the European Union, according to the governor of the Bank of England.

Comparing forecasts made by Threadneedle Street before the referendum, prepared on the basis of a remain vote, Mark Carney told MPs that household incomes were now significantly lower than expected.

“Real household incomes are about £900 per household lower than we forecast in May of 2016, which is a lot of money,” he said.

Speaking in front of the Treasury select committee of MPs, Carney also said the economy was 2% smaller than forecast before the EU referendum, despite the strength of the global economy and an emergency rate cut from the Bank after the Brexit vote.

“That’s a reasonable difference” to forecasts for the economy made in May 2016, he added.

Although admitting it was difficult to say with certainty that Brexit was the sole reason for lower household incomes, the Bank governor suggested the referendum outcome played a significant role. Previous analysis by economists has put the potential cost for each British household of voting to leave the EU at £600 a year.

The full report is here:

The recent poor performance of shares in Marks & Spencer mean the venerable retailer is in danger of falling out of the FTSE 100 when the latest index changes are announced next week.

It looks just about safe at the moment, despite a near 3% decline in its shares today, but the reaction to this week’s results could be crucial.

Helal Miah, investment research analyst at The Share Centre, said:

Whilst investors will be hoping that the company’s full year results, due to be released to the market tomorrow, will provide a similar boost to that rival Next received recently, the harsh reality is that the retail environment continues to hugely weigh on this well-known and respected retailer. M&S is likely to find itself amongst the relegation places as a result of weak figures in its all-important food business released to the market earlier this year. Whilst there have been some encouraging signs that the new management team on the clothing side is having some impact, competitive pressure from rivals and relatively weak consumer sentiment has left sales growth uninspiring. Its full year results could ultimately decide its fate, at least in regards to its future in the FTSE 100.

Ironically one of the candidates to replace M&S if it did drop out is Ocado following the recent surge in its shares after its big US contract win.

G4S and Severn Trent are among the others who could lose their place in the top flight index, while FTSE 250 constituents Weir and GVC are knocking on the door.

While Mark Carney was speaking to MPs, the UK economy received two pieces of bad news.

Marks & Spencer, the high street chain, has announced it is closing more than 100 stores by 2022,

It has identified 14 stores that will close in the next year, affecting more than 600 staff, as the company tries to tackle falling profits and growing competition from online retailers.

Secondly, UK factory orders have weakened this month to their lowest level since November 2016. The CBI reported that weak domestic demand hurt British manufacturers, while export orders held up better.

The campaign for a second Brexit vote have seized on Mark Carney’s comments:

Ruth Lea, economic adviser at Arbuthnot Banking Group (who is optimistic about Brexit), isn’t impressed by Carney’s calculation:

The Evening Standard is splashing on Carney’s comments:

Perhaps the editor, a prominent Remain campaigner two years ago, feels his warnings of economic pain if people voted for Brexit are coming true....

Liberal Democrat MP Tom Brake tweets:

John Mann MP asks Mark Carney a series of mischievous and piercing questions.

Mann gets Carney to confirm that he is still planning to leave the Bank of England in June 2019. He’s confident that the government can ‘multitask’ and choose a successor despite the pressure of Brexit.

But Mann points out that there are rumours of a general election this autumn. So within a few months (if Labour wins power), the Bank of England could be given a new remit to target unemployment as well as inflation.

Q: Is the Bank of England prepared for a change in your remit?

Carney says he believes the Bank’s remit should indeed be reviewed every five to eight years. Whatever remit parliament give us, we will implement.

The current remit is ‘absolutely fit for purpose’, Carney insists.

Mann suggests that it might be better to make any remit changed before, rather than after, a new governor is appointed. That could be an argument for Carney staying on longer at the Bank.

Mann then swerves to a different issue:

Q: What impact has Simon Cowell had on the UK economy?

Mann explains that Cowell (of the X-Factor and Britain’s Got Talent) has driven a change in behaviour - more people are staying in on Saturday nights rather than going out.

Carney says the Bank has beefed up its expertise in behavioural economics in recent years, to track these trends. He suggests social media and the internet is probably a bigger factor, though:

Q: Britain has become a world leader in wind power. So given the importance of green energy, shouldn’t the Bank be taking a bigger role in driving the economic case?

Carney agrees that this is a hugely important issue - citing Britain’s ‘world leadership’ in, for example, using artificial intelligence to drive new power grids.

This is too long-term to influence the Monetary Policy Committee...but it’s certainly an important issue for the Bank’s Financial Policy Committee, who are looking at whether firms are well-prepared for changes.

Carney says the UK has taken a global lead in “better climate disclosure” - encouraging companies to report how climate change will affect them.

He says the top six banks, asset managers, major insurers have signed up - there are now $90 trillion of assets behind the initiative.

The backdrop to this question, though, is that activist investor Christopher Hohn has written to the BoE, demanding stricter rules on how banks deal with the risks of climate change.

Hohn argues that UK banks are exposed to a wide range of “serious climate-related risks” through their loan books, but investors aren’t being given enough information. More here.

That’s the end of the session.

Q: Surveys show that Brexit uncertainty among businesses has fallen recently. Do you think it remains high, and is it really falling?

Carney agrees that there has been a small improvement in business confidence about Brexit since Britain and Europe agreed a transition deal in March, “as you would hope”.

The decisive issue, though, will be whether a final agreement is reached later this year.

Gertjan Vlieghe also denies that QE has fuelled Britain’s housing market.

He points out that many countries have used quantitative easing to stimulate their economies since the financial crisis - but Britain is the only one to have seen such as house price boom.

[Bank policymakers recently published a paper on the consequence of QE - arguing that it had actually reduced wealth inequality.]

Q: Hasn’t QE solidified intergenerational inequality, and made it even harder for Generation Rent to buy a home? How can we unwind that problem?

Deputy governor Dave Ramsden says it is an important issue...but not one that is particularly within the Bank of England’s remit to solve.

Ramsden (previously chief economic adviser to HM Treasury) points out that supply-side constraints have driven house prices up for decades.

Tackling housing affordability is ultimately an issue for the government, Ramsden, insists, as they can change land use and the tax system.

Q: Has the Bank of England’s quantitative easing programme failed, by driving up asset prices when the Bank is meant to be targeting consumer price inflation?

QE is the process by which the Bank buys government debt from commercial banks, to encourage them to buy other assets. Those assets (commercial bonds, shares, commodities) tend to be owned by wealthier people.

Carney, though, denies that QE was a blunder. “The policy has worked”, he says, pointing out that unemployment (arguably the biggest cause of inequality) has fallen steadily in recent years.

The Brexit dividend?

Q: Do you accept that Britain’s extremely low interest rates mean there is no incentive for businesses to invest capital?

No, Carney replies firmly. He doesn’t accept that swathes of ‘zombie firms’ are being propped up across the UK by extra-low interest rates, making it hard for better firms to compete.

The number of such companies has fallen in recent years, he insists, as poor performing companies are driven out of the economy.

Instead, Brexit uncertainty has been hurting business investment - as firms decide to sit on the sidelines until the future becomes clearer.

Back in parliament, Michael Saunders has been reminded that he’s been outvoted no fewer than five times at the Bank of England when he has pushed, in vain, for interest rates.

Q: Why were you outvoted so many times?

Well, mathematically, it’s because there were more votes to leave interest rates unchanged, says Saunders patiently.

Saunders thinks borrowing costs should have risen faster, to reflect the strong UK labour market. With unemployment at its lowest rate since the early 1970s, wages should be rising (not that we can see much sign of it yet!), so the Bank should be alert for inflationary pressures building.

The Treasury has welcome the news that UK borrowing fell last month.

A Treasury spokesperson says:

“Borrowing is at the lowest level for a decade, which shows our balanced approach is working. We are backing public services, keeping taxes low, and investing £31 billion more in infrastructure and skills as we build an economy that is fit for the future.”

Breaking away from parliament.... Britain’s public finances were stronger than expected last month.

The UK borrowed £6.2bn in April, down from £7.3bn a year ago. That’s a better start to the new financial year than expected.

In another boost, the total deficit for the last financial year was £2bn lower than expected.

John Hawksworth, chief economist at PwC, explains:

“There was more good news for the Chancellor on the public finances today, with estimated public borrowing in 2017/18 revised down by just over £2 billion relative to initial estimates published last month.

This reflects a combination of stronger tax receipts and lower government spending.

Carney adds that the economic activity lost under the snow last winter won’t be clawed back - which is why the Bank was cautious about raising interest rates this month.

Q: Why does the Bank of England think the ‘Beast from the East’ hurt growth in the last quarter, while the Office for National Statistics says snow didn’t have an effect?

Mark Carney says the ONS’s data was based on a questionnaire sent to businesses - ‘very few’ people answered the question, he claims.

The Bank, though, sent its regional agents out to actually talk to firms around the country. They reported that the snow had a negative effect.

Q: Do you believe the Bank should give more ‘explicit’ guidance for the future path of interest rates, as Gertjan Vlieghe argued this morning?

Deputy governor Dave Ramsden is sceptical that this is a good idea. He thinks it could be ‘lost in translation’, and mistaken for a promise for how interest rates would change.

MPC member Michael Saunders agrees - he tells MPs there is “no way” the Bank could give an unconditional forecast for the path of interest rates.

But, Saunders thinks there is value in giving an estimate for the neutral rate of interest (R*, for economists in the room) - the rate at which the economy is growing at its long-term trend rate, while inflation remains stable.

Governor Carney says the MPC have discussed the issue, and a majority of members were opposed to giving more explicit guidance.

Gertjan Vlieghe has also suggested that the Bank of England could give clearer guidance on interest rate policy.

He tells MPs that he has suggested that policymakers give more ‘explicit’ forecasts for how they think borrowing costs will change in the future.

He concedes, though, that this could create a risk - investors could “underestimate the degree of uncertainty” if central banks become too precise in their communication of the projected future path of interest rates.

The US Federal Reserve has a similar policy already - its policymakers create a ‘dot chart’ each quarter suggesting how many interest rate changes they expect.

The Treasury committee is now asking about the Bank of England’s communications.

Why did the Bank hint in February that interest rates would rise faster than previously expected, only to leave them on hold in May?.

There’s a difference between knowing that the future is uncertain, and not knowing what’s going on, Vlieghe insists. As data comes in, the Bank adjusts its view for the future path of interest rates.

Asked about Brexit, Gertjan Vlieghe says that there was “much less of a response than we thought” in the immediate aftermath of the referendum in 2016.

But there is now a “clear effect”, he adds, citing the ‘dampening effect’ of Brexit on investment.

Financial newswire RANsquawk point out that things could be worse for Carney - at least one critic won’t be there today

(JRM has moved to parliament’s “Exiting the EU Committee”).

I suspect that Mark Carney would happily forego today’s inquisition at parliament.

He won’t welcome being quizzed about his ‘forward guidance’ -- the hints about an interest rate rise that didn’t materialise this week. He could do without another debate on Brexit risks too.

And he would certainly rather avoid being asked whether he agrees with Ben Broadbent that the UK’s economy is entering a ‘climacteric’, or ‘menopausal’, phase.

Communication is a key weapon for today’s central bankers. But perhaps Carney should ponder whether “less is more” when he speaks to financial markets.

As Bloomberg puts it:

After a bruising month that’s seen his own signals on interest rates questioned and one of his deputies forced to apologize for calling the economy menopausal, communication is once again a hot topic for the Bank of England governor.

Carney, who arrived at the BOE in 2013 with forward guidance as his signature policy, will come under more scrutiny this week when he faces a grilling from U.K. lawmakers. He’ll also give speeches in London and Stockholm.

“Some people would say the safest thing for the Bank of England to do right now is to go back to being mystical,” said Clea Bourne, a senior lecturer and financial communications specialist at Goldsmiths, University of London.